What are the legal options after a breach of contract?
The first advice we give to clients who come to us seeking lawyers for breach of contract is to act very carefully. Acting out of anger or principle can prove to be very costly and contract law and legal remedies may not be fully on your side even if you believe the breach of contract is clear.
Check the contract
This is an essential step which is often overlooked. Checking the contract means :
- Being confident which contract applies – in many cases this is clear but sometimes you may have submitted your terms and conditions and not noticed or ignored the fact that the other party also, for example, sent you a purchase order which incorporated their terms and conditions.
- Checking the entire contract – a common mistake is to look at the default and termination clauses only but other clauses may also be very relevant legally.
- Considering whether the contract may have been varied. Many contracts will state that any variations must be formal and in writing but this may not prevent a defence being lodged to any claim for breach of contract based on verbal variations alleged, variations in correspondence such as emails or texts or implied contract variations based on conduct. For example, with an ongoing contract relationship, where the other party is late paying you in the past and you now feel you want to terminate based on too many late payments, you may fail with a breach of contract claim because you may have waived your right to terminate by accepting late payments in the past (this does not of course mean you wouldn’t be able to sue for the money owed, which is different from terminating).
Legal options after breach depend on the type of breach
A major legal risk after a breach by the other party is to assume you are 100% entitled to terminate the contract. The legal right to terminate in fact only applies in quite limited circumstances and in most cases the party in breach should be required to remedy the breach. If you don’t have the right to terminate, you should also be careful that you still comply with the contract yourself.
If you suffer loss as a result of the breach of contract, you will also need to mitigate those losses whether you have the right to terminate the contract or not.
There are 2 main ways of establishing whether you have the right to terminate the contract :
- The contract has clear clauses dealing with the right to terminate and the circumstances the clause stipulate can be clearly shown to apply. For example, common termination clauses for breach of contract might relate to the right to terminate based on failure to pay on time or to deliver goods on time. Termination clauses will often include procedural requirements to serve a Notice of Termination. It’s important to comply with the process fully and carefully as failure to do so may have legal consequences.
- If the contract doesn’t clearly give you the express right to terminate, you need to establish that there has been a fundamental or repudiatory breach of contract. The starting point for this is to consider whether the breach of contract is so serious as to make the contract unworkable or that it goes to the root of the contract. Determining this issue is a legal and factual assessment and it’s worthwhile taking legal advice.
What are contract damages and how are they calculated?
Damages is simply the legal term for losses caused to the innocent party in a breach of contract situation.
The legal interpretation of damages is not so straightforward. Just because a contract has been breached does not legally mean an entitlement to compensation. In fact, under UK contract law damages are generally not compensatory. It is perfectly possible to have a claim for breach of contract where the reality is there are no claimable losses directly related to the breach.
Assessing damages will depend on your own conduct if you have a breach of contract claim. Did you give the party in breach the opportunity to put things right?
If you have to source goods or services because the party in breach has failed or is unable to remedy the breach, you cannot just buy those goods or services from an alternative supplier at any price as of right. Proving you have mitigated the losses you have incurred and have acted reasonably, is essential.
Claiming damages for breach of contract generally raises difficult and technical legal and evidential issues. Before starting a claim for a breach of contract it is recommended to obtain legal advice.
We’d be happy to discuss this with you so please do get in contact with us.
What other legal remedies are there for breach of contract?
In some situations, damages may not be able to place the innocent party in the position he/she/they would have been in had the breach not occurred. In limited circumstances the courts have equitable discretion to make an order for specific performance which effectively orders the party in breach to comply. This is a remedy used sparingly. Perhaps the best example where specific performance may be an option is with residential property transactions, where the seller is in breach in completing the transaction.
Whilst not strictly a legal remedy, one option is to seek to renegotiate the contract based on the breach, to tighten it up going forward, gain other advantages and to ensure that if you do not take legal action based on the breach you reserve your rights to do so in future based in any further breach. These can be important and easily overlooked ways to respond to a breach of contract.
Is it worth suing for breach of contract?
Litigation is inherently time consuming and costly and never risk free. Obtaining a court judgment can take many months if a defendant decides to stall or play games. Enforcing a judgment has no guarantees either.
Defendant businesses or individuals in financial difficulties may already have other judgments. Before starting down the route of litigation it’s important to do your homework and think things through.
Additional reasons why suing may not be a good option and/or a less aggressive approach may be better in the initial stages following a breach include :
- Where there is an important longstanding relationship with the party in breach where it is worth an attempt to get the party in breach to put things right.
- Where the party in breach has not breached the contract on competence/delivery aspects and provides you with a specialist and important service not easily obtainable elsewhere. Destroying the relationship in these circumstances may not make sound business sense.